Speculation And Economic Stability Pdf

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Stabilisation and growth

The Economics of Futures Trading pp Cite as. The purpose of the following paper is to examine, in the light of recent doctrines, the effects of speculation on economic stability. Speculation, for the purposes of this paper, may be defined as the purchase or sale of goods with a view to re-sale re-purchase at a later date, where the motive behind such action is the expectation of a change in the relevant prices relatively to the ruling price and not a gain accruing through their use, or any kind of transformation effected in them or their transfer between different markets. What distinguishes speculative purchases and sales from other kinds of purchases and sales is the expectation of an impending change in the ruling market price as the sole motive of action. Unable to display preview. Download preview PDF. Skip to main content.

Speculation and Economic Stability

Economic stability enables other macro-economic objectives to be achieved, such as stable prices and stable and sustainable growth. It also creates the right environment for job creation and a balance of payments. This is largely because stability creates certainty and confidence and this encourages investment in technology and human capital. Unfortunately, an unintended consequence of globalisation is the increased likelihood of economic shocks, including supply side shocks like oil and commodity price shocks, and demand side shocks like the credit crunch. Built-in automatic fiscal stabilisers, which include progressive taxes and escalating welfare payments, provide a shock absorber to stabilise an economy following an economic shock. The combined effect of these is to create fiscal drag during periods of unusually strong growth, and fiscal boost during periods of very weak growth or negative growth. Negative or positive demand side shocks can be stabilised more quickly when automatic stabilisers are built-in to the tax-benefit system.

The article originally appeared in Review of Economic Studies, vol. vn, , pp. l Ill. B. A. Goss et al., The Economics of Futures Trading.

Stabilisation and growth

Speculation is the purchase of an asset a commodity , goods , or real estate with the hope that it will become more valuable in the near future. In finance, speculation is also the practice of engaging in risky financial transactions in an attempt to profit from short term fluctuations in the market value of a tradable financial instrument —rather than attempting to profit from the underlying financial attributes embodied in the instrument such as value addition, return on investment, or dividends. Many speculators pay little attention to the fundamental value of a security and instead focus purely on price movements. Speculation can in principle involve any tradable good or financial instrument. Speculators are particularly common in the markets for stocks , bonds , commodity futures , currencies , fine art , collectibles , real estate , and derivatives.

4 Factors That Shape Market Trends

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The proposed information measure is useful to quantify the efficiency with which stock markets respond to the implementation of monetary policy. The findings show that an increase in both money supply and credit growth, as well as declining interest rates, lead to strong market inefficiencies during the initial periods of formation of a bubble. Moreover, empirical evidence suggests that when a loose monetary policy money supply is expanded and is accessible to agents to encourage economic growth generates inefficiencies, its instruments are not effective to realign the performance of financial markets. Despite the recurring presence of this kind of phenomena, its study still represents innumerable questions related to the origin, detection and convenience of government intervention to stop the evolution of bubbles in financial markets. Even the definition itself is not yet exempt from controversy. Regarding the causes that can explain the formation of a speculative bubble, there are many studies that point to different factors. Some papers focus on the analysis of behavioral finances.

It is widely recognized that expectations of future events have significant impact on exchange rates movements. The role of expectations in exchange rate movements can be considered as a source of exchange rate estimation error. In a sense it is a pity that the majority of empirical evidence on the exchange rate fluctuation clearly negates the validity of such models that are more sophisticated and comprehensive.

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Policies to promote stability

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  4. Naomi H. 11.04.2021 at 00:44

    such speculative activity would be attended by a loss, and not a gain; and such speculators would be speedily eliminated. Only the speculator with better than.

  5. Benjamin A. 13.04.2021 at 17:26

    doctrines, the effects of speculation on economic stability. Speculation, for the purposes of this article, may be defined as the purcpase (or sale) of goods with.